Ordinance on coal block auctions: A stop gap measure not economic reform

The coal ordinance the government plans to promulgate will add another feather to Prime Minister Narendra Modi’s cap, but just a half feather. For it is not reform in its true sense, but just a swift action.

The government on Monday said it is promulgating an ordinance to facilitate e-auction of the blocks for private companies for captive use and allot mines directly to state and central PSUs.

“The Cabinet has recommended promulgation of an Ordinance to the President in order to resolve the pending issues particularly the situation arising out of the Supreme Court judgement quashing the allocation of the coal blocks.” Arun Jaitley has been quoted as saying in a PTI report . The press conference was attended by coal minister Piyush Goyal too.

“As far as the private sector is concerned, the actual users of coal in the cement, steel and power sectors who apply for a certain number of coal mines will be put in the pool and there would be an e-auction. A sufficient and adequate number of mines would be put so that actual users go back with the mines,” Jaitley said.

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So are the much awaited reforms finally set to roll in the sector that is reeling under the monopoly of Coal India?

Not really. For the government has vehemently denied any plan for denationalisation of the coal blocks, which would open up coal mining to the private sector and bring about reforms in true sense.

“The original Nationalisation Act remains…,” Jaitley has been quoted as saying in the PTI report. He further insisted the process would not in any way impact the structure of Coal India.

“Coal India would continue to function as it is and all the mining requirements of CIL in present and future will be adequately protected.”

To be fair, the minister has hinted that the coal sector may be deregulated later. He has said private sector players may be allowed to mine coal for commercial use in future.

“There will be an enabling provision for the future where under rules which are framed for commercial users of mines could also be decided by the Central government. This would lead to an optimal utilisation of the natural resource,” the minister has said.

So what is the ordinance aimed at? Clearly not at reforming the mining sector but at mitigating the likely negative impact of the Supreme Court’s cancellation of coal blocks and, of course, protecting the interests of Coal India, which is going in for a further divestment after the Diwali.

One thing that is markedly different from the earlier UPA government seems to be the swiftness with which the government has acted. When compared to the UPA’s indecision, which was mind numbing, this is comment worthy. After the 2G scam verdict by the Supreme Court that cancelled the telecom licences, the Congress-led government had dithered on spectrum re-auction for months.

In comparison, Jaitley has assured that the auction process would be “transparent” and completed in “three to four months”. That should definitely make a difference. But still it is just a half-hearted reform. For the real change, political intervention in Coal India has to stop and the sector has to be denationalised.

Frankly, there is nothing much that Modi can claim credit for in the whole development because half reforms are problematic as this editorial in the Business Standard says.

Criticising the government’s recent fuel sector reforms, the editorial has noted that the steps go against the genuine spirit free-market economics unless downstream sectors like fertiliser and power is also decontrolled completely.

“Some downstream user industries, such as fertilisers, have prices that are not yet freed. Unless those prices are also freed, this increase in gas prices will inflate the government’s subsidy bill. There is a similar problem when it comes to the power sector, where tariff differentials for sectors have already played havoc,” the editorial noted.

As long as the government continues with such half reforms, Modi has no reason to claim credit for the changes that has been brought about. For one, he has been lucky with the decline in global commodity prices, which has enabled him to take the decision on decontrolling diesel prices. However, the government held back from deregulating the LPG subsidy regime.

The case is similar with the coal sector. The Supreme Court’s order had opened up the opportunity for the government to denationalise the sector. But that too has not happened. It is time Modi realised that a bottle half full is also half empty. And that can reallycomplicatethings in a free economy.